What makes Brewer/Garrison/Noreen

bre17879_fm.qxd
10/2/03
10:27 AM
Page viii
What makes
Brewer/Garrison/Noreen,
Introduction to Managerial Accounting is full of pedagogy
designed to make studying productive and hassle-free. On the following pages, you will
see the kind of engaging, helpful pedagogical features that make Brewer/Garrison/Noreen
a favorite among both teachers and students.
4
C H A P T E R
F O U R
Systems Design:
Process Costing
Opening Vignette
Each chapter opens with a two-page Chapter
Opener featuring a real-world company.
A LOOK BACK
CHAPTER OUTLINE
We described a basic job-order
costing system in Chapter 2 that
used a single plantwide overhead
rate. Then, in Chapter 3, we
looked at activity-based costing, a
more sophisticated technique
that uses a variety of allocation
bases to assign overhead costs
to products.
Author-Written Supplements
Comparison of Job-Order and
Process Costing
■
Similarities between Job-Order and
Process Costing
■
Differences between Job-Order and
Process Costing
A Perspective of Process Cost Flows
A LOOK AT THIS
CHAPTER
The authors write all of the text’s major
supplements, ensuring a perfect fit between
text and supplement. For more information
on Brewer/Garrison/Noreen’s
supplements, see pages xxii and xxiii.
Chapter 4 covers process
costing, which is an important
alternative to job-order costing.
In process costing, departmental
costs are applied uniformly to the
products processed through the
department during the period.
A LOOK AHEAD
Equivalent Units of Production
■
Weighted-Average Method
Production Report—Weighted-Average
Method
■
Step 1: Prepare a Quantity Schedule and
Compute the Equivalent Units
■
Step 2: Compute Costs per Equivalent Unit
■
Processing Departments
■
Step 3: Prepare a Cost Reconciliation
■
The Flow of Materials, Labor, and
Overhead Costs
■
A Comment about Rounding Errors
■
Materials, Labor, and Overhead
Cost Entries
SUPPLEMENT: FIFO METHOD
( A V A I L A B L E O N T H E W E B AT
W W W. M H H E . C O M / B G N 2 E )
After discussing how costs
respond to changes in the level
of business activity, we will
introduce the contribution
format income statement in
Chapter 5.
■
Step 2: Compute the Costs per Equivalent
Unit
Comparison of Equivalent Units of
Production under the Weighted-Average
and FIFO Methods
■
Step 3: Prepare a Cost Reconciliation
A Comparison of Costing Methods
Production Report—FIFO Method
Infographics
New infographics have been
included throughout the text to
help students visualize key
accounting concepts.
Step 1: Prepare a Quantity Schedule
and Compute the Equivalent Units
Continuous Process Manufacturing vs. Job-Order Manufacturing
Continuous Process:
Pencil
ACME cturing
Manufa
No. 2
Pencils No
.2
Pencils
No.
Pen 2
cils
Inputs
Conversion Process
Acme Pencil
ing
Manufactur
No. 2 Pencils
No.
Penc 2
ils
Outputs
Job-Order Process:
m Doo
Custo ng
ACMaEnufacturi
M
Inputs
r
Conversion Process
C
Me
co
ex
wa
co
inf
in
wa
to
ba
he
be
the
rea
fea
Equivalent Units—FIFO Method
■
D
Outputs
No.
Penc 2
ils
Acme Pencil
Manufacturing
No. 2 Pencils
Acme Pencil
Manufacturing
No. 2 Pencils
bre17879_fm.qxd
10/3/03
3:39 PM
Page ix
ix
2nd edition, such a powerful learning tool?
based costing, we have been able to better identify the overhead costs of each product and thus derive more accurate cost data.
The pattern of cost distortion shown by the ABC team’s findings is quite common.
Such distortion can happen in any company that relies on direct labor-hours or machinehours in assigning overhead cost to products and ignores other significant factors affecting overhead cost incurrence.
MANAGERIAL
ACCOUNTING
IN ACTION
comtek
SOUND, INC.
Wrap-Up
The ABC team presented the results of its work in a meeting attended by all of the top
managers of Comtek Sound including the president, Sarah Kastler; the production manager, Frank Hines; the marketing manager, Nicole Sermone; and the accounting manager,
Tom Frazier. After the formal presentation by the ABC team, the following discussion
took place:
Sarah: I would like to personally thank the ABC team for all the work they have
done. I am now beginning to wonder about some of the decisions we have made in
the past using our old cost accounting system.
Tom: I hope I don’t have to remind anyone that I have been warning people about this
problem for quite some time.
Sarah: No, you don’t have to remind us, Tom. I guess we just didn’t understand the
problem before.
Nicole: It’s obvious from this activity-based costing information that we had everything backwards. We thought the competition was pricing below cost on the CD
units, but in fact we were overcharging for these units because our costs were overstated. And we thought the competition was overpricing DVD units, but in fact our
prices were way too low because our costs for these units were understated. I’ll bet
the competition has really been laughing behind our backs!
Sarah: You can bet they won’t be laughing when they see our next bids.
D E C I S I O N F E AT U R E
LEARNING
OBJECTIVES
Costing Cream Soda
After studying Chapter 4,
you should be able to:
Megan Harris started a company that produces cream soda from an old family recipe. At first the
company struggled, but as sales increased, the company expanded rapidly. Megan soon realized that to
expand any further, it would be necessary to borrow money.The investment in additional equipment
was too large for her to finance out of the company’s current cash flows.
Megan was disappointed to find that few banks were willing to make a loan to such a small
company, but she finally found a bank that would consider her loan application. However, Megan was
informed that she would have to supply up-to-date financial statements with her loan application.
Megan had never bothered with financial statements before—she felt that as long as the balance
in the company’s checkbook kept increasing, the company was doing fine. She was puzzled how she
was going to determine the value of the cream soda in the work in process and finished goods inventories.The valuation of the cream soda would affect both the cost of goods sold and the inventory
balances of her company. Megan thought of perhaps using job-order costing, which had been used at
her previous employer, but her company produces only one product. Raw ingredients are continually
being mixed to make more cream soda, and more bottled cream soda is always coming off the end of
the bottling line. Megan didn’t see how she could use a job-order costing132
system since the job never
really ended. Perhaps there was another way to account for the costs of producing the cream soda.
Would you like to produce your own brand of soda pop? Visit brewpubmag.com/98jul/
feature2.html on the Internet for a detailed discussion of the ins and outs of brewing sodas.
“Managerial Accounting
in Action”
These highly praised vignettes
depict cross-functional teams
working together in real-life
settings on products and
services that students recognize
from their own lives. Students
are shown step-by-step how
accounting concepts are
implemented in organizations
and how these concepts are
applied to solve everyday
business problems. First,
“The Issue” is introduced
through a dialogue. The
student then walks through
the implementation process.
Finally the “Wrap-Up”
summarizes the big picture.
LO1 Record the flow of
materials, labor, and overhead
through a process costing
system.
LO2 Compute the equivalent
units of production using the
weighted-average method.
LO3 Prepare a quantity
schedule using the weightedaverage method.
“In Business”
LO4 Compute the costs per
equivalent unit using the
weighted-average method.
LO5 Prepare a cost Chapter
reconciliation using the weightedaverage method.
IN BUSINESS
3
Is E-Tailing Really Easier?
The company art.com™ sells prints and framed prints over the web. An ABC study identified the following 12 activities carried out in the company:
1. Service customers
2. Website optimization
3. Merchandise inventory selection and
management
4. Purchasing and receiving
5. Customer acquisition and retention—
paid-for marketing
6. Customer acquisition and retention—
revenue share marketing (affiliate
group)
7. Sustain information system
8. Sustain business—administration
9. Sustain business—production
10. Maintain facility—administrative
11. Maintain facility—production
These helpful boxed features
offer a glimpse into how real
companies use the managerial
accounting concepts discussed
within the chapter. Every
chapter contains from two to
nine of these current examples.
12. Sustain business—executive
For example, the activity “merchandise inventory selection and management” involves
scanning, describing, classifying, and linking each inventory item to search options.
“Staff must carefully manage each change to the database, which is similar to adding and
removing inventory items from the shelf of a store. They annotate added inventory items
and upload them into the system, as well as remove obsolete and discontinued items. . . .
The number of inventory items for an e-tailer is typically much greater than for a brickand-mortar [store], which is a competitive advantage, but experience shows managing a
large inventory consumes substantial resources.”
Source: Thomas L. Zeller, David R. Kublank, and Philip G. Makris, “ How art.com™ Uses ABC
to Succeed,” Strategic Finance, March 2001, pp. 25–31. Reprinted with permission from the
IMA, Montvale, NJ, USA, www.imanet.org.
Service
Owing to the growing number
of service-based companies in
business today, the second
edition uses a helpful icon to
distinguish service-related
examples.
bre17879_fm.qxd
10/2/03
10:27 AM
Page x
What makes
Brewer/Garrison/Noreen,
p
mayor of the city, Stephen Goldsmith, explained: “Introducing competition and privatization to government services requires real cost information. You can’t compete out if you are
using fake money.” When city workers became aware of the costs of carrying out activities
such as filling potholes in streets and were faced with the possible transfer of such tasks to
the private sector, they became highly motivated to reduce costs. Instead of going out to fill
potholes with a five- or six-man repair crew, plus a supervisor, they started doing the same
job with a three- or four-man crew without a supervisor. The number of politically appointed supervisors, which had stood at 36 for 75 employees, was slashed by half.
Source: Robert S. Kaplan and Robin Cooper, Cost & Effect: Using Integrated Cost Systems to
Drive Profitability and Performance, Harvard Business School Press, Boston, 1998, pp. 245–250.
The Decision Maker
feature fosters critical thinking
and decision-making skills by
providing real-world business
scenarios that require the
resolution of a business issue.
The suggested solution is located
at the end of the chapter.
Internet assignments teach
students how to find
information online and apply it
to managerial accounting
situations.
Writing assignments encourage
your students to practice critical
thinking.
Legal Firm Business Manager
You have been hired to manage the business aspects of a local legal firm with a staff of 6
attorneys, 10 paralegals, and 5 staffpersons. Clients of the firm are billed a fixed amount
per hour of attorney time. The fixed hourly charge is determined each year by dividing the
total cost of the legal office for the preceding year by the total billed hours of attorney
time for that year. A markup of 25 percent is then added to this average cost per hour of
billed attorney time to provide for a profit and for inflation.
The firm’s partners are concerned because the firm has been unprofitable for several
years. The firm has been losing its smaller clients to other local firms—largely because
the firm’s fees have become uncompetitive. And the firm has been attracting larger clients
with more complex legal problems from its competitors. To serve these demanding larger
clients, the firm must subscribe to expensive on-line legal reference services, hire additional paralegals and staffpersons, and lease additional office space.
What do you think might be the reason for the unprofitable operations in recent
years? What might be done to improve the situation for the coming year?
2. Which of the following statements is false? (You may select more than one answer.)
a. Activity-based costing systems usually shift costs from low-volume products to
high-volume products.
b. Benchmarking can be used to identify activities with the greatest potential for
improvement.
c. Activity-based costing is most valuable to companies that manufacture products
that are similar in terms of their volume of production, lot size, and complexity.
d. Activity-based costing systems are based on the assumption that the costs included in each activity cost pool are strictly proportional to the cost pool’s acProblems of Overhead Application
tivity measure.
(14)
Cost of Goods Sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Manufacturing Overhead . . . . . . . . . . . . . . . . . . . . .
DECISION
MAKER
✓
CONCEPT
CHECK
101
5,000
5,000
Note that since the Manufacturing Overhead account has a debit balance, Manufacturing
Overhead must be credited to close out the account. This has the effect of increasing Cost
of Goods Sold for April to $123,500:
Unadjusted cost of goods sold [from entry (13)] . . . . . . . . . . . . $118,500
Add underapplied overhead [entry (14) above] . . . . . . . . . . . . . .
5,000
Adjusted cost of goods sold . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $123,500
After this adjustment has been made, Rand Company’s income statement for April will
appear as shown earlier in Exhibit 2–12.
The You Decide feature
challenges students to apply
the tools of analysis and make
decisions. The suggested
solution is found at the end of
the chapter.
Remaining Balance in the Overhead Account
The simplest method for disposing of any balance remaining in the Overhead account is
to close it out to Cost of Goods Sold. If there is a debit balance (that is, overhead has been
underapplied), the entry to dispose of the balance would include a debit to Cost of Goods
Sold. That debit would increase the balance in the Cost of Goods Sold account. On
the other hand, if there is a credit balance, the entry to dispose of the balance would
include a credit to Cost of Goods Sold. That credit would decrease the balance in the
Cost of Goods Sold account. If you were the company’s controller, would you want a
debit balance, a credit balance, or no balance in the Overhead account at the end of the
period?
A General Model of Product Cost Flows
The flow of costs in a product costing system is presented in the form of a T-account
model in Exhibit 2–14. This model applies as much to a process costing system as it does
to a job-order costing system. Examination of this model can be very helpful in understanding how costs enter a system, flow through it, and finally end up as Cost of Goods
Sold on the income statement.
Multiple Predetermined Overhead Rates
Our discussion in this chapter has assumed that there is a single predetermined overhead rate for an entire factory called a plantwide overhead rate. This is a fairly common
practice—particularly in smaller companies. But in larger companies, multiple predetermined overhead rates are often used. In a multiple predetermined overhead rate system, each production department may have its own predetermined overhead rate. Such
a system, while more complex, is considered to be more accurate, since it can reflect
differences across departments in how overhead costs are incurred. For example, overhead might be allocated based on direct labor hours in departments that are relatively
YOU
DECIDE
bre17879_fm.qxd
10/2/03
10:27 AM
Page xi
xi
2nd edition, such a powerful learning tool?
total cost would you expect to be incurred for direct materials? For rent on the factory building? (In
preparing your answer, assume that direct materials is a variable cost and that rent is a fixed cost.)
4. Explain to the president the reason for any difference in the average cost per unit between (2) and
(3) above.
BUILDING YOUR SKILLS
CHECK FIGURE
(1) Cost of goods
manufactured:
$450,000
ANALYTICAL THINKING
(LO1, LO2, LO3, LO4)
Hickey Company, a manufacturing firm, produces a single product. The following information has been
taken from the company’s production, sales, and cost records for the just completed year:
End-of-Chapter Material
Our problem and case material continues to
conform to AECC and AACSB
recommendations and makes a great starting
point for class discussions and group projects.
Other helpful features include:
Production in units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30,000
Sales in units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
?
Ending finished goods inventory in units . . . . . . . . . . . . . . . .
?
Sales in dollars . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $650,000
Costs:
Advertising . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $50,000
Direct labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $80,000
Indirect labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $60,000
Raw materials purchased . . . . . . . . . . . . . . . . . . . . . . . . . . . $160,000
Building rent (production uses 80% of the space;
administrative and sales offices use the rest) . . . . . . . . . $50,000
Utilities, factory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $35,000
Royalty paid for use of production patent,
$1 per unit produced . . . . . . . . . . . . . . . . . . . . . . . . . . .
?
Maintenance, factory . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $25,000
Rent for special production equipment,
$6,000 per year plus $0.10 per unit produced . . . . . . . .
?
Selling and administrative salaries . . . . . . . . . . . . . . . . . . . . $140,000
Other factory overhead costs . . . . . . . . . . . . . . . . . . . . . . $11,000 PROBLEM 1–22 Financial Statements; Cost Behavior (LO3, LO4, LO5)
Other selling and administrative expenses . . . . . . . . . . . . . $20,000 Various cost and sales data for Jaskot Company for the just completed year follow:
Problems
71
CHECK FIGURE
(1) Cost of goods
manufactured:
$233,000
Spreadsheets have become an
increasingly common tool for
managerial accountants; therefore,
selected exhibits and data appear as
Microsoft Excel® screen captures.
3. Prepare an income statement for the year.
CASE (LO3, LO4)
While snoozing at the controls of his Pepper Six airplane, Dunse P. Sluggard leaned heavily against the
door; suddenly, the door flew open and a startled Dunse tumbled out. As he parachuted to the ground,
Dunse watched helplessly as the empty plane smashed into Operex Products’ plant and administrative
offices.
“The insurance company will never believe this,” cried Mercedes Juliet, the company’s controller, as
she watched the ensuing fire burn the building to the ground. “The entire company is wiped out!”
“There’s no reason to even contact the insurance agent,” replied Ford Romero, the company’s operations manager. “We can’t file a claim without records, and all we have left is this copy of last year’s annual
report. It shows that raw materials at the beginning of this year (January 1) totaled $30,000, work in process
totaled $50,000, and finished goods totaled $90,000. But what we need is a record of these inventories as
of today, and our records are up in smoke.”
“All except this summary page I was working on when the plane hit the building,” said Mercedes. “It
shows that our sales to date this year have totaled $1,350,000 and that manufacturing overhead cost has totaled $520,000.”
“Hey! This annual report is more helpful than I thought,” exclaimed Ford. “I can see that our gross
margin rate has been 40% of sales for years. I can also see that direct labor cost is one-quarter of the manufacturing overhead cost.”
“We may have a chance after all,” cried Mercedes. “My summary sheet lists the sum of direct labor
and direct materials at $510,000 for the year, and it says that our goods available for sale to customers this
year has totaled $960,000 at cost. Now if we just knew the amount of raw materials purchased so far
this year.”
“I know that figure,” yelled Ford. “It’s $420,000! The purchasing agent gave it to me in our planning
meeting yesterday.”
“Fantastic,” shouted Mercedes. “We’ll have our claim ready before the day is over!”
To file a claim with the insurance company, Operex Products must determine the amount of cost in its
inventories as of the date of the accident. You may assume that all of the materials used in production during the year were direct materials.
Required:
Ethics assignments serve as a
reminder that good conduct is
The topjust
management
General Electronics, Inc.,
known for in
“managing by the numbers.” With
as ofimportant
asis well
profits
an eye on the company’s desired growth in overall net profit, the company’s CEO (chief executive officer) sets target profits at the beginning of the year for each of the company’s divisions. The CEO has
business.
Group
projects
can
stated her policy as follows: “I won’t interfere with operations in the divisions. I am available for advice,
but the division vice presidents are free to do anything they want so long as they hit the target profits for
the year.”
be assigned either as
In November, Stan Richart, the vice president in charge of the Cellular Telephone Technologies Division, saw that making the current year’s target profit for his division was going to be very difficult. Among
homework
or as expenditures
in-class
other actions,
he directed that discretionary
be delayed until the beginning of the new year.
On December 30, he was angered to discover that a warehouse clerk had ordered $350,000 of cellular telephone parts
earlier in Decemberprojects.
even though the parts weren’t really needed by the assembly department
discussion
until January or February. Contrary to common accounting practice, the General Electronics, Inc., AcDetermine the amount of cost in the raw materials, work in process, and finished goods inventories as of
the date of the accident. (Hint: One way to proceed would be to reconstruct the various schedules and statements that would have been affected by the company’s inventory accounts during the year.)
ETHICS CHALLENGE (LO2)
counting Policy Manual states that such parts are to be recorded as an expense when delivered. To avoid
recording the expense, Mr. Richart asked that the order be canceled, but the purchasing department reported that the parts had already been delivered and the supplier would not accept returns. Since the bill had
Required:
1. Prepare a schedule of cost of goods manufactured.
2. Prepare an income statement.
3. The company produced the equivalent of 12,000 units of product during the year just completed.
What was the average cost per unit for direct materials? What was the average cost per unit for
factory depreciation?
4. The company expects to produce 10,000 units of product during the coming year. What per unit cost
and what total cost would you expect the company to incur for direct materials at this level of
activity? For factory depreciation? (In preparing your answer, assume that direct materials is a
variable cost and that depreciation is a fixed cost that will be the same next year as it was this year.)
5. Explain to the president any difference in the average cost per unit between (3) and (4) above.
PROBLEM 1–23
Financial Statements; Cost Behavior
(LO3, LO4, LO5)
Selected account balances for the year ended December 31 are provided below for Rolling Company:
Selling and administrative salaries . . . . . . . . . . . . $55,000
Insurance, factory
. . . . . . . . an
. . . . . . . . . . . . . . . . . $6,000
Spreadsheets have
become
Utilities, factory . . . . . . . . . . . . . . . . . . . . . . . . . . $10,000
Purchases of raw materials . . . . . . . . . . . . . . . . . $76,000
increasingly common
budgeting
Indirect labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,000
labor . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
?
tool
for Direct
Advertisingmanagerial
expense . . . . . . . . . . . . . . . . . . . . . . . $26,000
Cleaning supplies, factory . . . . . . . . . . . . . . . . . . . $4,000
Sales commissionsto
. . .assist
. . . . . . . . . . . . . . . . . . . . . $33,000
accountants; therefore,
Rent, factory building . . . . . . . . . . . . . . . . . . . . . . $49,000
Maintenance, factory . . . . . . . . . . . . . . . . . . . . . . $15,000
students in understanding
how
budgets look in a spreadsheet,
all figures pertaining to
budgeting will appear as
screen
Microsoft
Excel®
CHECK FIGURE
(1) Cost of goods
manufactured:
$244,000
Ethics assignments serve as a reminder that
good conduct is essential in business. Group
projects can be assigned either as homework or as
in-class discussion projects.
bre17879_fm.qxd
10/2/03
10:27 AM
Page xii
What’s new about
PROLOGUE
CHAPTER 3
New in this Edition
New in this Edition
• The TOC section has been completely
rewritten.
• Many new In Business boxes have been
added.
• The role of the CFO is discussed in greater
detail.
CHAPTER 4
• Links between e-commerce and subsequent
chapters are briefly laid out.
New in this Edition
• Many new In Business boxes have been
added.
• Subtle changes have been made in the format
of the production report to improve its
readability.
CHAPTER 1
New in this Edition
• Rounding has been eliminated as an issue in
all examples and end-of-chapter materials by
ensuring that all computations carried out to
the nearest whole cent yield exact answers.
• The illustration of Inventory Flows in Exhibit
1–5 has been improved.
• The alternative approach to computation of
cost of goods sold has been eliminated.
• New material dealing with ethical issues in
the determination of product and period
costs has been added.
• Many new In Business boxes have been
added.
CHAPTER 2
New in this Edition
• Better illustration of job-order costing vs.
process costing has been added.
• Many new In Business boxes have been
added.
CHAPTER 5
New in this Edition
• Scattergraph plots now precede the high-low
method.
• We now refer to the method for estimating
fixed and variable costs based on the visual fit
to the scattergraph plot as the
“quick-and-dirty” method. The emphasis in
the scattergraph section of the text is now
on diagnosis of cost behavior patterns rather
than as a way to estimate fixed and variable
costs.
• The term “regression line” is now reserved
for the line that is computed by least-squares
regression.
bre17879_fm.qxd
10/28/03
9:32 AM
Page xiii
xiii
the second edition?
CHAPTER 6
CHAPTER 11
New in this Edition
New in this Edition
• The CVP graph is introduced before break-even
analysis to provide a better intuitive basis for the
analysis.
• A new, easy-to-understand example has been
added illustrating the identification of relevant
and irrelevant costs.
• Many new In Business boxes have been added.
• Material dealing with the reconciliation of the
total and differential approaches has been added.
CHAPTER 7
• The section dealing with equipment replacement
decisions has been eliminated. This subject is
more appropriately covered in the capital
budgeting chapter.
New in this Edition
• The mechanics of how to construct the various
schedules in the master budget are more thoroughly explained in the text.
• Many new In Business boxes have been added.
• Many new In Business boxes have been added.
CHAPTER 12
New in this Edition
CHAPTER 8
New in this Edition
• A new exhibit, Exhibit 8–1, provides an overview
of the variance reporting process.
• Several new In Business boxes have been added.
• The variances, and their computations, are more
fully explained.
• Many new In Business boxes have been added.
• The present value tables have been expanded to
include all rates of return between 5% and 25%.
CHAPTER 13
New in this Edition
• Many new In Business boxes have been
added.
CHAPTER 9
New in this Edition
CHAPTER 14
• Improved illustration of static vs. flexible budgets
has been added.
New in this Edition
• New In Business boxes have been added.
• Many new In Business boxes
have been added.
CHAPTER 10
New in this Edition
• New In Business boxes have been added.
bre17879_fm.qxd
10/2/03
10:28 AM
Page xiv
Can technology really
help students and professors
in the learning process?
How can I easily integrate
web resources into my
course?
ONLINE LEARNING
CENTER (OLC)
®
More and more students are studying online. That’s
why we offer an Online Learning Center (OLC) that
follows Introduction to Managerial Accounting
chapter by chapter. It doesn’t require any building or
maintenance on your part. It’s ready to go the moment
you and your students type in the URL.
Today, nearly 200,000
college instructors use the Internet in their courses.
Some are just getting started, while others are ready to
embrace the very latest advances in educational content
delivery and course management.
That’s why we at McGraw-Hill/Irwin offer you a
complete range of digital solutions. Your students can
use Introduction to Managerial Accounting’s
complete Online Learning Center, NetTutor, and
PowerWeb on their own, or we can help you create your
own course website using McGraw-Hill’s PageOut.
In addition to web-based assets, Introduction to
Managerial Accounting boasts Topic Tackler, a
CD-ROM
that
assistance
for
offers
the
special
most
chapter-by-chapter
demanding
managerial
accounting topics. With McGraw-Hill’s Presentation
Manager CD-ROM, instructors have access to nearly
every crucial supplement, from the instructor’s resource
manual to the test bank, in both print and electronic
media.
McGraw-Hill is a leader in bringing helpful technology
into the classroom. And with Introduction to
Managerial Accounting, your class gets all the
benefits of the digital age.
As your students study, they can refer to the OLC for
such benefits as:
•
•
•
•
•
•
•
•
•
Self-grading quizzes
PowerPoint presentations
Internet exercises
Alternate problems
Chapter outlines
Practice exams
Online tutoring (NetTutor)
Excel spreadsheets
Links to URLs referenced in the text
A secured Instructor Resource Center stores your
essential course materials to save you prep time before
class. The Instructor’s Manual, Solutions, PowerPoint,
and sample syllabi are now just a couple of clicks away.
You will also find useful packaging information and
transition notes.
The OLC also serves as a doorway to other technology
solutions like PageOut, which is free to textbook
adopters.
bre17879_fm.qxd
10/2/03
10:28 AM
Page xv
Many of my students work or have other obligations
outside of class.
How can they get book-specific help at their convenience?
is a breakthrough program that allows one-on-one assistance completely online. Qualified
accounting tutors equipped with Introduction to Managerial Accounting work online with your students on
specific problems or concepts from their text.
NetTutor allows tutors and students to communicate with each other in a variety of ways:
The Live Tutor Center via NetTutor’s WWWhiteboard
enables a tutor to hold an interactive, online tutorial session with a
student or several students. The WWWhiteboard acts as a virtual
chalkboard where students can view tutor-created spreadsheets,
T-accounts, and written explanations during hours that work with your
students’ schedules.
The Q&A Center allows students to submit
questions at any time and retrieve answers within 24 hours.
The Archive Center allows students to browse for
answers to previously asked questions. They can also search for
questions pertinent to a particular topic. If they encounter an answer
they do not understand, they can ask a follow-up question.
Students are issued five hours of free NetTutor time when
they purchase a new copy of Introduction to Managerial
Accounting. Additional time may be purchased in
five-hour increments. Tutors are available during
the week to help students clear those afternoon
and evening study hurdles.
xv
bre17879_fm.qxd
10/2/03
10:28 AM
Page xvi
How can my students use their
study time more effectively?
MCGRAW-HILL
HOMEWORK MANAGER
Topic Tackler
Topic Tackler is an exciting, interactive CD created by
Jeannie Folk to help students with the concepts they
typically find the most difficult to learn. These concepts
are highlighted in the text with the topic tackler icon,
which tells students that they can refer to the CD for
additional instruction. The material on the CD includes a
video segment, a PowerPoint® slide show, a practice
session, and a self-test for each of the 28 difficult-tomaster concepts. It also contains a student tutorial.
The following are examples of the difficult-to-master
topics that are included in Topic Tackler:
•
•
•
•
•
•
•
•
•
•
•
•
Application of Overhead
Computing Activity Rates and Product Costs
Calculation of Equivalent Units
Process-Costing Cost Reconciliation
Contribution Format Income Statement
Budgeting Process
Flexible Budgets
Variance Analysis (Direct Materials, Direct Labor, and Overhead)
Adding or Dropping Product Lines or Segments
Make or Buy Decisions
Net Present Value Method for Capital Budgeting
Classifying Cash Flows
Homework Manager is an exciting new
web-based supplement available with
Introduction to Managerial Accounting.
Homework Manager will help your
students learn management accounting by allowing
them to work through selected problem structures
pulled from the text and powered by algorithms.
Providing a wealth of these textbook-quality questions
enables students to work on fresh problems with the
same problem structure until they master the topics
covered. Each student also receives immediate scoring
and feedback from the program to guide his or her
studies.
The problem structures available in Homework
Manager can be easily identified in the text by the
Homework Manager icon found in the margin.
Homework Manager to accompany Introduction to
Managerial Accounting also includes problem material
that will require your students to build the research,
analysis, judgment, communication, and spreadsheet
skills that will be required on the new Uniform CPA
Exam. This provides you with an easy solution for
ensuring that your students are prepared to sit the new
exam.
Homework Manager may be used in practice,
homework, or exam mode, as well a variety of other
standard assignment modes. In the practice mode,
students receive feedback and work as many iterations
of each problem as they like without entering a record
in the class grade book. In the homework mode,
students receive a customized level of feedback, and
their grades and individual responses are recorded in
the class grade book. In the exam mode, faculty can
create an online exam. Homework Manager will then
record all the individual responses, grade the exams,
and record the grades in the online grade book. So, you
know not only how your class performed on the exam
but also which topics or learning objectives your
students struggled with.
Homework Manager is powered by
Brownstone Learning.
bre17879_fm.qxd
10/2/03
10:28 AM
Page xvii
What’s the best way for my students
to brush up their Accounting skills?
GradeSummit
ALEKS (Assessment and
LEarning in Knowledge
Spaces) is an artificial-intelligence-based system for
individualized learning, available from McGraw-Hill over the
World Wide Web.
tells your students what
they need to know in order to study effectively. And it
provides you, the instructor, with valuable insight into which of
your students are struggling and which course topics give them
the most trouble.
GradeSummit provides a series of practice tests that can be
taken in various formats according to student preference:
practice mode, for instance, displays the correct answer
immediately, while exam mode simulates a real classroom
exam and displays results at the end. There’s even a smart
testing engine, SummitExpress, that automatically scales the
difficulty level of the questions according to the student’s
responses.
ALEKS delivers precise, qualitative diagnostic assessments of
students' knowledge, guides them in the selection of
appropriate new study material, and records their progress
toward mastery of curricular goals in a robust classroom
management system.
ALEKS interacts with the student much as a skilled human
tutor would, moving between explanation and practice as
needed, correcting and analyzing errors, defining terms, and
changing topics on request. By sophisticated modeling of a
student’s knowledge state for a given subject, ALEKS can focus
clearly on what the student is most ready to learn next.When
students focus on exactly what they are ready to learn, they
build confidence and a learning momentum that fuels success.
ALEKS Math Prep for Accounting provides coverage of the
basic math skills needed to succeed in introductory
accounting, including basic arithmetic, fractions, decimals,
percents, and simple algebra concepts. Refreshing and
improving these skills help students perform better
throughout the course.Visit the ALEKS website at
www.business.aleks.com for more information.
Once a student has taken a particular test, GradeSummit
returns a detailed results page showing exactly where the
student did well and where he or she needs to improve.
Students can compare their results with those of their other
classmates, or even with those of every other student using
the text nationwide. With that information, students can plan
their studying to focus exclusively on their weak areas, without
wasting effort on material they’ve already mastered. And they
can come back to take a retest on those subjects later,
comparing their new score with their previous efforts.
As an instructor, you’ll know which students are falling behind
simply by consulting GradeSummit’s test logs, where results for
every student in your course are available for review. Because
GradeSummit’s results are so detailed, you’ll know exactly
what topics are causing difficulties—an invaluable aid when it
comes to planning lectures and homework.
xvii
bre17879_fm.qxd
10/2/03
10:28 AM
Page xviii
How can I easily
For the instructor
needing to educate students online, we offer Introduction to Managerial
Accounting content for complete online courses. To make this possible, we
have joined forces with the most popular delivery platforms currently available.
These platforms are designed for instructors who want complete control over
course content and how it is presented to students. You can customize the
Introduction to Managerial Accounting Online Learning Center
content and author your own course materials. It’s entirely up to you.
Products like
WebCT, Blackboard, and eCollege all expand the
reach of your course. Online discussion and message boards complement your
office hours. Thanks to a sophisticated tracking system, you will know which
students need more attention—even if they don’t ask for help. That’s because
online testing scores are recorded and automatically placed in your grade book,
and if a student is struggling with coursework, a special alert message lets you
know.
Remember, Introduction to Managerial Accounting’s content is
flexible enough to use with any platform currently available. If your department
or school is already using a platform, we can help. For information on
McGraw-Hill/Irwin’s course management supplements, including Instructor
Advantage and Knowledge Gateway, see “Knowledge Gateway” on the previous
page.
bre17879_fm.qxd
10/2/03
10:28 AM
Page xix
xix
create an online course?
®
McGraw-Hill’s Course Management System
PageOut is the easiest way to create a website for your accounting course.
There’s no need for HTML coding, graphic design, or a thick how-to book. Just fill in a series
of boxes with simple English and click on one of our professional designs. In no time, your
course is online with a website that contains your syllabus!
If you need assistance in preparing your website, we can help. Our team of product specialists
is ready to take your course materials and build a custom website to your specifications.
You simply need to call a McGraw-Hill/Irwin PageOut specialist to start the process. Best
of all, PageOut is free when you adopt Introduction to Managerial Accounting!
To learn more, please visit http://www.pageout.net.
10/2/03
SUPPLEMENTS
bre17879_fm.qxd
10:28 AM
Page xx
Supplements
INSTRUCTOR SUPPLEMENTS
Instructor CD-ROM
ISBN 0072917466
Allowing instructors to create a
customized multimedia presentation, this
all-in-one resource incorporates the Test
Bank, PowerPoint® Slides, Instructor’s
Resource Guide, Solutions Manual,
Teaching Transparency Masters, links to
PageOut, and the Spreadsheet Application
Template Software (SPATS).
Solutions Manual and Disk
Test Bank
ISBN 0072921595
ISBN 0072917504
This supplement contains completely
worked-out solutions to all assignment
material and a general discussion of the
use of group exercises. In addition, the
manual contains suggested course outlines
and a listing of exercises, problems, and
cases scaled according to difficulty.This
print supplement is packaged with
a CD-ROM containing the Solutions
Manual in Microsoft Word® format.
Nearly 2,000 questions are organized by
chapter and include true/false, multiplechoice, and essay questions and computational problems.
Instructor’s Resource Guide
and Video Manual
Teaching Transparencies
ISBN 0072917512
Contains a comprehensive set of over 260
teaching transparencies covering every
chapter that can be used for classroom
lectures and discussion.
This supplement contains the teaching
transparency masters and the video
guide, extensive chapter-by-chapter lecture
notes to help with classroom presentation,
and useful suggestions for presenting key
concepts and ideas.
Check Figures
These provide key answers for selected
problems and cases.They are available on
the text’s website.
Solutions Transparencies
ISBN 0072917482
These transparencies feature completely
worked-out solutions to all assignment
material.The font used in the solutions
is large enough for the back row of any
lecture hall. Masters of these
transparencies are available in the
Solutions Manual.
ISBN 0072917474
Diploma Computerized
Testbank
ISBN 0072917490
This test bank is now delivered in the
Diploma Shell, new from Brownstone. Use
it to make different versions of the same
test, change the answer order, edit and add
questions, and conduct online testing.
Technical support for this software is
available.
Excel Templates
PowerPoint® Slides
Prepared by Jon Booker, Charles
Caldwell, and Richard Rand, all of
Tennessee Technological University, and
Susan Galbreath of Lipscomb University,
these slides offer a great visual
complement for your lectures. A complete
set of slides covers each chapter. They are
only available on the Instructor CD-ROM
and the text’s website.
Prepared by Jack Terry of ComSource
Associates, Inc., these Excel templates
offer solutions to the Student SPATS
version.They are only available on the
Instructor CD and the text’s website.
Dallas County Community
College Telecourse
These short, action-oriented videos,
developed by Dallas County
Community College, provide the impetus
for lively classroom discussion.The focus is
on the preparation, analysis, and use of
accounting information for business
decision making. (To acquire the complete
telecourse, Accounting in Action,
call Dallas TeleLearning at 972-669-6666,
fax them at 972-669-6668, or visit their
website at
http://telelearning.dcccd.edu.)
bre17879_fm.qxd
10/2/03
10:28 AM
Page xxi
xxi
STUDENT SUPPLEMENTS
Topic Tackler CD-ROM
Telecourse Guide
ISBN 0072917458
ISBN 0072531754
Free with the text, the Topic Tackler
CD-ROM helps students master difficult
concepts in managerial accounting through a
creative, interactive learning process.
Designed for study outside the classroom,
this multimedia CD delves into chapter
concepts with graphical slides and diagrams,
web links, video clips, and animations, all
centered around engaging exercises designed
to put students in control of their learning of
managerial accounting topics.
This study guide ties the Dallas County
Community College Telecourse directly to
this text.
Workbook/Study Guide
ISBN 0072835249
This study aid provides suggestions for
studying chapter material, summarizes
essential points in each chapter, and tests
students’ knowledge using self-test questions
and exercises.
PowerPoint®
ISBN 0072835222
This booklet provides PowerPoint®
exhibits in a workbook format for efficient
note taking.
Working Papers
ISBN 0072835230
This study aid contains forms that help
students organize their solutions to
homework problems.
Excel Templates
Prepared by Jack Terry of ComSource
Associates, Inc., this spreadsheet-based
software uses Excel to solve selected
problems and cases in the text. These
selected problems and cases are identified in
the margin of the text with an appropriate
icon. The Excel Templates are only available
on the text’s website.
Ramblewood
Manufacturing, Inc.,
CD-ROM
ISBN for instructor version 0072536357
ISBN for student version 0072536667
This computerized practice set was prepared
by Leland Mansuetti and Keith Weidkamp,
both of Sierra College, and has been
completely updated.This software simulates
the operations of a company that
manufactures customized fencing.
It can be used to illustrate job-order costing
systems with JIT inventory in a realistic
setting. The entire simulation requires 10 to
14 hours to complete. A new feature
prevents files from being transferred from
one disk to another without detection. It is
available on CD-ROM and runs on Microsoft
Windows®.
Communication for Accountants:
Effective Strategies for Students
and Professionals
ISBN 0070383901
Authored by Maurice Hirsch of
Southern Illinois University–Carbondale and
Susan Gabriel and Rob Anderson, both of
St. Louis University, this brief and
inexpensive handbook addresses the need
for accountants to communicate effectively
through both writing and speaking.
bre17879_fm.qxd
10/2/03
10:28 AM
Page xxii
Reviewers
Suggestions have been
received from many of our
colleagues throughout the world who
have used the prior edition of
Introduction to Managerial Accounting.
This is vital feedback that we rely on in
each edition. Each of those who have
offered comments and suggestions has our
thanks.
The efforts of many people are needed
to develop and improve a text. Among
these people are the reviewers and
consultants who point out areas of
concern, cite areas of strength, and make
recommendations for change. In this
regard, the following professors provided
feedback that was enormously helpful in
preparing the second edition of
Introduction to Managerial
Accounting:
Omneya Abd-Elsalam, Aston University
L. M. Abney, LaSalle University
Sol Ahiarah, SUNY College at Buffalo
William Ambrose, DeVry University
Robert Appleton, University of North Carolina – Wilmington
Leonard Bacon, California State University – Bakersfield
Roderick Barclay, Texas A&M University
Larry Bitner, Hood College
Jay Blazer, Milwaukee Area Technical College
Nancy Bledsoe, Millsaps College
William Blouch, Loyola College
Eugene Blue, Governor State University
Linda Bolduc, Mount Wachusett Community College
Casey Bradley, Troy State University
Marley Brown, Mt. Hood Community College
Betty Jo Browning, Bradley University
Myra Bruegger, Southeastern Community College
Francis Bush, Virginia Military Institute
Rebecca Butler, Gateway Community college
June Calahan, Redlands Community College
John Callister, Cornell University
Annhenrie Campbell, California State University, Stanislaus
Elizabeth Cannata, Stonehill College
Dennis Caplan, Iowa State University
Kay Carnes, Gonzaga University
Siew Chan, University of Massachusetts, Boston
John Chandler, University of Illinois – Champaign
Lawrence Chin, Golden Gate University
Carolyn Clark, St. Joseph’s University
Joanne Collins, California State University – Los Angeles
Judith Cook, Grossmont College
Charles Croxford, Merced College
Richard Cummings, Benedictine College
Jill Cunningham, Santa Fe Community College
Alan Czyzewski, Indiana State University
Betty David, Francis Marion University
Deborah Davis, Hampton University
G. DiLorenzo, Gloucester County College
Keith Dusenbery, Johnson State College
James Emig, Villanova University
Michael Farina, Cerritos College
bre17879_fm.qxd
10/2/03
10:28 AM
Page xxiii
xxiii
John Farlin, Ohio Dominican University
Harriet Farney, University of Hartford
M. A. Fekrat, Georgetown University
W. L. Ferrara, Stetson University
Jerry Ferry, University of North Alabama
Joan Foster, Collge Misericordia
James Franklin, Troy State University Montgomery
Joseph Galante, Millersville University of Pennsylvania
David Gibson, Hampden-Sydney College
John Gill, Jackson State University
Jackson Gillespie, University of Delaware
Joe Goetz, Louisiana State University
Art Goldman, University of Kentucky
James Gravel, Husson College
Linda Hadley, University of Dayton
Anita Hape, Farrant County Jr. College
Dan Hary, Southwestern Oklahoma State University
Susan Hass, Simmons College
Robert Hayes, Tennessee State University
James Hendricks, Northern Illinois University
Nancy Thorley Hill, DePaul University
Kathy Ho, Niagra University
Mary Hollars, Vincennes University
Norma Holter, Towson University
Ronald Huntsman, Texas Lutheran University
Wayne Ingalls, University of Maine College
David Jacobson, Salem State College
Martha Janis, University of Wisconsin – Waukesha
Holly Johnston, Boston University
Sanford Kahn, University of Cincinnati
Marsha Kertz, San Jose State University
Michael Klimesh, Gustav Adolphus University
Greg Kordecki, Clayton College and State University
Michael Kulper, Santa Barbara City College
Christoper Kwak, Ohlone College
Steven LaFave, Augsburg College
Thomas Largay, Thomas College
Robert Larson, Penn State University
Chor Lau, California State University – Los Angeles
Angela Letourneau, Winthrop University
Barry Lewis, Southwest Missouri State University
Joan Litton, Ferrum College
G. D. Lorenzo, Gloucester Community College
Bob Mahan, Milligan College
Leland Mansuetti, Sierra College
Lisa Martin, Western Michigan University
Jayne Mass, Towson University
Laura Morgan, University of New Hampshire
Anthony Moses, Saint Anselm College
Daniel Mugavero, Lake Superior State University
Muroki Mwaura, William Patterson University
Presha Neidermeyer, Union College
Eizabeth Nolan, Southwestern Oklahoma State University
Michael O’Neill, Seattle Central Community College
George Otto, Truman College
Chei Paik, George Washington University
Eustace Phillip, Emmanuel College
Anthony Piltz, Rocky Mountain College
H. M. Pomroy, Elizabethtown College
Alan Porter, Eastern New Mexico University
Barbara Prince, Cambridge Community College
Ahmad Rahman, La Roche College
Joan Reicosky, University of Minnesota – Morris
Leonardo Rodriguez, Florida International University
Gary Ross, College of the Southwest
Martha Sampsell, Elmhurst College
John Savash, Elmira College
Roger Scherser, Edison Community College
Henry Schwarzbach, University of Colorado
Eldon Schafer, University of Arizona
Deborah Shafer, Temple College
Ola Smith, Michigan State University
John Snyder, Florida Technical
Soliman Soliman, Tulane University
Alice Steljes, Illinois Valley Community College
Joseph Ugras, LaSalle University
Edward Walker, University of Texas – Pan American
Frank Walker, Lee College
Robert Weprin, Lourdes College
Brent Wickham, Owens Community College
Geri Wink, University of Texas at Tyler
James Wolfson, Wilson College